• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

'20 Cent': It's Not a Budget Rapper, It's a Way to Pick Stocks

This tool is pointing more toward natural gas stocks than oil stocks.
By DANIEL DICKER Sep 22, 2016 | 12:28 PM EDT
Stocks quotes in this article: CVX, SWN, COP

Here's a column on what I call "20 cent" stock picking. I call it that because it's so uncomplicated, so intuitive that anyone can do it, and it more often than not turns about to be a great tool. Today, this 20-cent stock tool is sending me toward natural gas stocks far more often than oil stocks -- and it's where you need to concentrate your energy portfolio money right now. 

What is 20-cent analysis? It's easy, really: Take a company and look over its historical chart, see where it's been and where it is now -- and make a quick, 20-cent assessment of where it might go in the future, in order to gauge current value. It's down and dirty and awfully simple, but guess what? It also often points you in the right direction. 

Let's look at two energy stocks as an example: Chevron (CVX) and Southwestern (SWN) : 

Chevron is a mega-cap energy stock that, despite engaging in all hydrocarbon production including natural gas, liquids and chemicals, still trades as a crude-oil stock more than anything else. Notice that even during the beginnings of the oil and gas bust, Chevron was coming from a height of about $130 a share. After bottoming under $70, it has recovered to trade nearly $100 again. The 20-cent analysis would say, "What's my upside here? Even if oil recovers towards $100 a barrel as it was in early 2014, would Chevron do much better than it's done previously?" Add the fact that a good portion of the strength in Chevron (as in other mega-caps) is its steady dividend -- certainly at risk in a longer bust cycle, as it was with Conoco-Phillips (COP) -- and you're pointed intuitively away from this one, at least right now. 

Now have a look at Southwestern: 

The Marcellus-based natural gas company has certainly endured a different battle than Chevron: It's had to resort to serious bond leverage and stock secondaries to survive this natural gas bust cycle. Hence, it's not surprising that it had a much deeper collapse as the oil and gas bust progressed, coming from nearly $50 a share in early 2014 to bottom at a lowly $5 a share, before recovering today to above $14. The 20-cent analysis would ask again, "What's my upside?" and get a much more enthusiastic response: Certainly if natural gas saw $4 or $5/mcf as in early 2014, we might not get back to its $50 highs, but the chances of doubling its current $14 share price is pretty good, despite the extra debt. 

Add to that the current pace of natural gas rebalancing, as compared to oil, and you've got more than a 20-cent stock to look seriously at: Natural gas injections were below the five-year average for the 19th straight week, the result of an unusually hot summer and reduced drilling caused by capex slashes in the Marcellus and Utica. It seems that the pace of the boom/bust cycling I outlined for oil in my book is more closely being represented by natural gas and will undoubtedly rebalance far ahead of the oil market. The reasons for that are worthy of a different column. 

The deeper the analysis, the more reasons you will find for placing hard-earned investment dollars away from oil at this point in the cycle -- and toward natural gas. 

But it is the 20-cent analysis that gets you started in that search for value -- and remains a very valuable and easy tool to use. 

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Dicker was long SWN, although positions may change at any time.

TAGS: Commodities | Markets | Energy | Investing

More from Energy

3 Oil & Gas Royalty Trusts For $100 Oil

Bob Ciura
May 20, 2022 2:05 PM EDT

For investors looking to take advantage of lofty oil and gas prices, we like these investment vehicles.

Exxon Mobil Nears an Historic Upside Breakout on the Charts

Bruce Kamich
May 20, 2022 9:56 AM EDT

Here's my advice for traders.

Constellation Energy Could Power 20% Higher From Here

Bruce Kamich
May 20, 2022 7:34 AM EDT

Shares of the clean energy power generator have rallied since going public in January.

Oil, War and Inflation: Here's Where Prices Are Likely Headed

Carley Garner
May 18, 2022 1:00 PM EDT

Oil has a war and inflation hedge premium, but those aren't permanent.

Occidental Petroleum Continues to Target Higher Prices

Bruce Kamich
May 16, 2022 2:52 PM EDT

Here's our first price target and our long term objective.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login